HMRC extends open banking payments to nine further tax regimes

HM Revenue & Customs (HMRC) has extended its use of open banking to nine further tax regimes, including tax levied on property purchases (stamp duty), capital gains tax and gambling duties.

The UK department created global government fintech history almost 10 months ago when it introduced an open banking-enabled ‘Pay by bank account’ option for people making online self-assessment tax returns  – believed to be the first time any government in the world had embedded open banking within its own operations. Payment of three further taxes via open banking was made possible shortly afterwards: PAYE (Pay-As-You-Earn) payments (tax paid direct from workers’ salaries) in May 2021; and then corporation tax and value-added tax (VAT).

HMRC confirmed to Global Government Fintech this week that people or organisations paying nine further types of tax are now able to use open banking, which involves the use of open application programming interfaces (APIs) to enable bank account holders to share their financial data with third parties. In enabling people or organisations to make payments to government by this method HMRC is striving to make payments to government simpler and safer, and to save government money.

The nine further tax regimes now payable by open banking are: Stamp Duty Land Tax (SDLT); Capital Gains Tax; Simple Assessment; PAYE Settlement Agreements; Class 1A NIC (National Insurance Contributions); Construction Industry Scheme (CIS) Penalties; Machine Games Duty; Pay Duty on Biofuels or Gas for Road Use; and General Betting and Remote Gaming Duties.

In a related update, the department confirmed that it has now received ‘almost’ £2.5 billion (about $3.4bn) in taxes paid by open banking – this is more than double the amount reported last September when Global Government Fintech broke the news that HMRC had reached the landmark of receiving ‘at least’ £1bn in tax through open banking.

‘We will continue rolling out the service’

“We are really pleased to have extended the service so quickly to nine more tax regimes,” HMRC’s head of payments Nick Down told Global Government Fintech this week. “The level of take-up has been very good. Receiving almost £2.5 billion in the first few months demonstrates that our customers find paying us this way easy and effective.”

Further tax types that can be paid by bank transfer will become payable by open banking ‘on a rolling basis’ over the next few months.

“We will continue rolling out the service and, to make it even easier for many of our customers, we will soon be enabling them to pay us by switching securely between desktop and mobile devices,” Down explained.

January typically marks the peak period for people paying tax to HMRC, with the UK’s annual deadline for self-assessment tax returns at the end of the month. It announced last week that ‘almost’ 6.5 million of the 12.2 million taxpayers who need to submit their tax return by 31 January have so far done so. HMRC is this year waiving for one month late filing and late payment penalties because, in its view, Covid-19 ‘is affecting the capacity of some agents and taxpayers to meet their obligations in time’.

Down told Global Government Fintech that the forthcoming self-assessment payments spike “will see the [£2.5 billion number] grow quickly”.

Ecospend powering the rollout

HMRC’s open banking rollout is being undertaken in partnership with fintech company Ecospend, which is providing the payments software to HMRC. The London-based firm was successful in an HMRC tender for open banking revealed by Global Government Fintech more than one year ago.

Ecospend’s brief, worth up to £3m (about $4.1m), sees the company contracted to provide ‘account-to-account’ payment software that allows HMRC to process payments, or, to use its technical acronym, launch PISP (Payment Initiation Service Provider) services. Before 24 March last year, individuals and organisations making payments to HMRC have needed to open their banking software (for example, log in to their online bank account) and manually complete a bank transfer payment, also inputting their tax/payment reference.

Those opting to pay their tax via open banking ‘tick’ to provide consent for Ecospend to securely connect them to their online banking and initiate an authorised payment on behalf of HMRC (an ‘Open Banking Privacy Notice’ seeks to reassure users). The Ecospend-powered service uses validated and pre-populated payment details, enabling payments directly from a payer’s bank account. This automation should increase speed, reduce human error (for example, if someone were to mistype their tax reference number), and also has the potential to reduce fraud.

The public purse should save on the resource associated with tracking down payments that fail to arrive because payers have entered their tax/payment reference or other information incorrectly, as well as saving on the interchange fee charged by card-providers.

GLOBAL GOVERNMENT FINTECH: FURTHER READING

Global Government Fintech’s dedicated ‘Open Banking & Open Finance’ topic section

‘HMRC reaches milestone as £1bn in UK tax paid through open banking’ – our news story (29 September 2021) on HMRC hitting a significant open banking milestone

‘UK’s HMRC extends open banking to payroll payments’ – our news story (26 May 2021) on HMRC going live with a further step in embedding open banking into its operations just weeks after introducing the ‘Pay by bank account’ option for people making online self-assessment tax returns

‘One small website button, one giant leap for payments to government’ – our analysis (6 April 2021) of HMRC’s introduction of its ‘Pay by bank account’ option for people filing online self-assessment tax returns (with open banking’s advocates hailing the moment’s significance – an apparent global first for payments-to-government and open banking)